Average charges incurred on Irish pensions sit at about 0.8 per cent per year, with proposed auto-enrolment likely to put further downward pressure on administration fees, according to research from Insurance Ireland.
A paper published by the insurance lobby group on Friday refutes a 2021 report, which claims that average annual pension charges of 3 per cent in Ireland are eating up as much as 60 per cent of retirement pots.
It suggests that the average 0.8 per cent Reduction in Yield (RIY) incurred by Irish pension holders from administration charges was “good value”. The RIY calculation looks at projected pension benefits where no charges are applied and then reruns the calculation with pension charges included.
Insurance Ireland highlights that its analysis is in line with a 2012 report from the Department of Social Protection, which found that the average charge for pension schemes was 0.84 per cent. This was based on information provided by the trustees of 340 occupational pension schemes here.
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The group called for improved transparency around the charges and fees involved with pensions.
An unauthored report provided to the Labour Party in 2021 stated that about 3 per cent was deducted from the value of a pension fund annually due to pension charges.
It added that an average of 35 to 45 per cent of pension pots were being eaten up by these charges, with the possibility that the proportion lost could be as high as 60 per cent of the pension total in some cases.
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Insurance Ireland has said the figures were “simply not correct”, and were based on maximum figures mentioned in the 2012 Department of Social Protection report, rather than average charges.
Moyagh Murdock, chief executive of Insurance Ireland, said that as the country moves towards an auto-enrolment system of pension savings, “the subject of pension charges will be increasingly debated”. The Government has proposed to introduce auto-enrolment by 2024, with a proposed maximum charge of 0.5 per cent on the State retirement savings scheme.
The research paper also noted the impact of an EU directive signed into Irish law in 2021, which makes it more onerous for employers to run stand-alone pension schemes, and encourages them to use shared master trust pension arrangements with reduced administration costs.
